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Ivanhoe, Inc. estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 20%. The following account balances are available: Inventory, March 1 $540000 Purchases 420000 Purchase returns 10000 Sales during March 720000 The estimate of the cost of inventory at March 31 would be $240000. $350000. $230000. $360000.

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Answer:

$ 410,000

Explanation:

Mark Up = 20% or 1/5

Therefore margin = 1/ 5 -1 = 1/4

Trading Account for the Month Ended March 31

Sales                                                                   720000

Less Cost of Sales

Opening Inventory                      $540000

Add Purchases                              420000

Less Purchases Returns                (10000)      

Less Closing Inventory                  410,000      540,000

Gross Profit                                                         180,000

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